* Market stabilises after previous day's sell-off
* Bunds recovery limited before U.S. jobs report
* Data seen reinforcing view Fed to start cutting stimulus
By Emelia Sithole-Matarise
LONDON, Sept 6 German yields slipped on Friday
as the market took a breather from the previous day's sell-off
but the recovery was limited before U.S. jobs data that could
determine when the Federal Reserve will cut monetary stimulus.
Ten-year yields flirted around the 2 percent mark they
topped on Thursday for the first time since March 2012, as an
improving economic outlook hit top-rated global debt and the ECB
signalled no imminent action to curb rising money market rates.
Bunds were seen vulnerable to renewed selling with the U.S.
non-farm payrolls report at 1230 GMT seen capping a week of
forecast-beating data which could prompt the Fed to start
tapering stimulus after its Sept. 17-18 policy meeting.
The world's biggest economy is expected to have added
180,000 non-farm jobs last month, keeping the unemployment rate
steady at 7.4 percent.
"If the payrolls report is strong it could get very messy
again. Presumably consensus has moved up after yesterday's data
so maybe the risk is it comes below and we get a bit of a lift
going into the weekend but the tone is pretty bearish," a trader
German 10-year yields were 3.5 basis points
lower at 2.00 percent, having risen as high as 2.059 early in
Bund futures were 39 ticks higher on the day at
138.98, having fallen more than one full point the previous
session. They were still on course to post their biggest weekly
fall in three weeks.
"It's typically a correction after the sell-off we had
yesterday," Patrick Jacq, a strategist at BNP Paribas, said of
the modest bounce-back in Bunds.
"Having said that, the market remains exposed to further
selling pressures in the near term given the economic backdrop
and what we can expect regarding the Federal Reserve."
German 10-year yields could rise as high as 2.10 percent if
the payrolls report overshoots forecasts, he added.
Some in the market had been looking to the European Central
Bank's policy meeting on Thursday for hints of imminent action
to back up the central bank's verbal efforts to counter upward
pressure on money market rates from the Fed's policy shift.
Bond markets shrugged off ECB President Mario Draghi's
affirmation that the bank would keep monetary policy
accommodative for a long time. He also said risks to the economy
remained to the downside.
"The ECB President did strike a dovish tone, but did not go
far enough, and ultimately failed to dampen rate hike
expectations," ING strategists said in a note.
The lull in financial markets before the U.S. data allowed
Spanish bonds to claw back some ground, with 10-year yields
down 6 bps at 4.55 percent, extending their
outperformance of Italian equivalents.
The 10-year Spanish yield premium over Italy squeezed back
to 2 basis points, the least in 1-1/2 years, as rising political
tensions in Rome weighed on bonds issued by the euro zone's
third biggest economy.
An ally of Silvio Berlusconi said the former premier had
prepared a message that could announce a decision to bring down
the country's ruling coalition if lawmakers voted to boot him
out of the Senate.
Berlusconi's allies have raised the stakes for Prime
Minister Enrico Letta's government ahead of a meeting on Monday
of a special Senate committee that will vote on whether to strip
him of his parliamentary seat after a conviction for tax fraud.